Merchant Services 101:

The three paths to accepting card payments.

How you accept credit and debit cards is a big decision that can cost you time and money. So we broke it down a few different ways—you can choose which breakdown you’d like depending on your appetite for information about merchant services and the amount of time you have.

Three different systems: hardware, software, and payment processors

Banks’ partners have limited options to choose from for point-of-sale hardware and software. This could mean that your system might not work as easily or seamlessly as those that are built to work together from the start. Plus, a bundled solution requires more setup time and more maintenance.

Three different systems: hardware, software, and payment processors

ISOs bundle point-of-sale hardware, the software to run it, and a card processor. As with the bank, this can mean that setup, training, and maintenance is a headache. Plus, ISOs only have relationships with some processors, so you have limited options. And because each system is made by different companies, you may need to contact multiple companies for support when something goes wrong.

One system, built to work together

With Square, the hardware and software are built to work together seamlessly. And if you do have questions, our highly trained customer support team is available via phone, email, and Twitter.

No hidden fees

More people needed

To set up and keep your multiple systems working smoothly, you may need to hire, contract, or outsource additional support. The bank or its acquiring partner may have a recommended vendor, but you’re not guaranteed to get great service or a fair price. And you have to manage the vendors, which is even more overhead.

More people needed

ISOs also create a need for more support to ensure your payments and your business run smoothly. Whether you pay a contractor, pick a vendor for implementation, or hire additional staff, getting your system set up and continuing to work can be costly. And then you have the question of who is running these aspects of your business and how much you trust them to be on your side.

Fewer people needed

Square offers a unified system designed to work together seamlessly. Because it’s a hosted solution, it’s on Square to make sure it works. We take care of PCI compliance, help with disputes and chargebacks, let you customize real-time reports, and do payroll in more and more of the country, all of which gives businesses hours and hours of time back.

Potentially thousands in hardware costs

The hardware you lease from banks or their acquiring partners can be costly. Plus, since you aren’t buying the hardware directly, you may end up paying more than what’s fair.

Potentially thousands in hardware costs

Most ISOs also rent, lease, and sell hardware for potentially much more than it would cost to buy. What’s worse, you won’t have a good sense of what you should be paying for the hardware you use. And it can take weeks to get your hardware delivered.

Affordable hardware, no long-term contracts

Square’s hardware is readily available and reasonably priced. Square Stand starts at $129 USD and Square Reader for contactless and chip costs $49 USD. They work with your iPad, iPhone, or Android. There are no maintenance fees.

PCI compliance is on you

Any hardware or software that’s connected to payments needs to be PCI compliant, which can be a lengthy process to minimize your risk for fraud. Twice a year, the issuers that manage PCI compliance can update the rules. So even if you thought you were PCI compliant (and even if you are paying a PCI-compliance fee), there is a chance that you’re out of compliance. Which opens you up to fines and fees.

PCI compliance is on you

This is the same with ISOs as it is through your bank’s partners. The compliance is on you, even if you pay a fee for it. Not being compliant puts you at risk for having to accept losses for fraudulent charges.

PCI compliance is on us

3–7 business days

Banks will deposit your money, but it generally takes at least three business days. It’s always a bit of a mystery on when it will come through.

2–10 business days?

Many merchant service providers can hold deposits anywhere from two to ten business days to ensure nothing bounces back in that time. If you’re a new business, it can take even longer because you need to prove that you’re a reliable business. Some deposits come through quickly, some take a long time. It’s always uncertain.

Fast, reliable deposits

Square assumes you’re a reliable business unless proven otherwise. So we deposit your money in one to two business days. Or it can be deposited instantly for just an extra 1% fee. Square deposits are reliable and consistent, which takes some stress out of your day and makes reconciliation a breeze.

No free online merchant services

Most banks or acquiring partners don’t have their own online merchant services option. That means you’re likely to be recommended to a partner, where you’re subject to the partner’s fees and pricing.

No free online merchant services

Like banks, most ISOs don’t have their own online merchant services option. If they pass you to a partner vendor, you need to pay additional fees or sign up for separate contract.

Online merchant services

Square integrates with top eCommerce platforms like Wix and BigCommerce, or you can build your own custom solution with our eCommerce and payments APIs. Plus you can send invoices digitally or accept credit card payments right from your computer with Virtual Terminal.

A full walkthrough of getting started

What are merchant services?

Merchant services is a broad term that describes the hardware, software, services, and financial relationships needed for businesses to accept and process credit or debit card payments from their customers. Many types of entities are authorized to be merchant services providers, and they are sometimes known as merchant account providers, credit card processors, acquirers, acquiring banks, or processors. Businesses can accept credit or debit card transactions online, through a payment card reader, or with a point-of-sale system.

What is a merchant account?

A merchant account—aka merchant services account—establishes a business relationship with a merchant services provider, like a bank, and enables a business to accept debit and credit cards, Apple Pay and other contactless payments, eCommerce transactions, and more.

Option 1

The Bank

Your bank may feel like the logical place to go for merchant services and credit card processing. After all, you already have a relationship with them and trust them to help with your business needs. But when it comes to accepting payments at your business, your bank relationship may not mean as much as you think it does.

Here’s how it works. At your bank, you need to apply for a merchant account to accept credit cards.

Before applying, you need a business license. Applications for merchant credit card services can include credit histories, employment history, bank statements, and more. Plus, it may take several days or longer for your merchant account to be approved, depending on the type of business you have and your experience.

Once approved, your bank—depending on your business size or the bank’s size—may be able to help you directly with your merchant services needs, such as payment processing, card reader hardware, and other software like POS systems. More likely, the bank will refer you to an acquiring partner. That means that you’re no longer working directly with the bank that you thought you had a relationship with. Instead, you’re working with a third-party company that may be vetted by your bank but which you may not know that much about.

Whether you end up working with the bank or, more likely, a third-party acquiring partner, you’re going to end up with a “bundled” solution. This means that your payment processing, hardware, and software may be sold as one big package but are actually all from different companies. Sure, it may work in theory, but products made by different companies don’t always work together seamlessly. It’s highly likely that you’ll need additional support to get all the systems working together. You have to pay for that out of pocket. Plus, keeping all those systems working together over the long haul can mean lots of expensive maintenance.

Another thing to watch for is whether your bank- or acquiring partner–sourced credit card processor allows you to accept all major credit card brands. If not, you may need to apply to those networks separately.

Finally, you need to get all the different pieces certified as PCI compliant. If you’re ever found not to be PCI compliant, you could be subject to heavy fees and fines.

Now you can finally accept cards at your business, but what are the pros and cons of accepting payments through your bank?

Option 2

The ISO

Sometimes, you may find yourself on the radar of an independent sales organization, also known as an ISO. Most of the time, an ISO approaches you proactively. Other times, you may reach out directly to the ISO, finding one through either advertisements or by searching online. If you have a smaller bank that doesn’t have acquiring partners, the bank may even refer you to an ISO.

However you ended up in contact with an ISO, it may seem like a great option on the surface.

To start, you still need a merchant account. You may need to fill out a long application that includes manual credit checks, bank statements, and employment histories. A representative from the ISO will likely help you do this.

ISOs often advertise very low rates or inexpensive options, and you think that you’re getting a great deal on your merchant services or credit card processing.

But there’s a catch. While the credit card processing rates may seem low, you often find yourself hit with a bevy of additional fees. If you work with an ISO, you need to be very careful to have a full understanding of the terms of your contract and the fees that you may need to pay.

Like the bank, the ISO bundles hardware, software, and credit card processing together from different companies. As with all bundled solutions, the payment processing, hardware, and software may work together in theory, but you’re likely to need additional support—which you have to pay for—to get all the systems working together.

Finally, you need to ensure that your end-to-end payments system is PCI compliant. Again, not being PCI compliant means you could be subject to heavy fees and fines.

Don’t take our word for it, ask them yourself.

Ask your ISO or separate suppliers the following to find out what you’re signing up for.

What monthly fees are charged for the average merchant?

Do you charge point-of-sale software fees, authorization fees, gateway fees, statement fees, chargeback fees, return fees, PCI-compliance fees, batch fees, early termination fees, international card fees, business card fees, or non-qualified fees? And on average, how much do those fees add up to in a month?

How long do you hold deposits?

How much does it cost to buy point-of-sale hardware?

What is the average wait time for your customer service?

What is the buyout cost of your hardware and card processing contracts?